Is VAT knocking at the front door of the US?

Puerto Rico to fix its financial crisis introduces a VAT system per April 1, 2016 to replace its current sales and use tax system. A wide range of supply of goods and services occurring after March 31, 2016 will be subject to a 10.5% or 0% VAT.

Is VAT knocking at the front door of the US?

It is important to know that Puerto Rico is not a US state, but more a Commonwealth of the US. It has local autonomy, however, the government of Puerto Rico falls ultimately on the US Congress. 

The elected governor of Puerto Rico occupies the highest public office. Puerto Ricans are US citizens. However, only Puerto Ricans who live in the US can vote for the US President in the general elections. Its residents are subject to US laws and pay income taxes to the US government.

If raising revenue and combat of the deficit is successful, the rest of the US will take notice.

How to be ready in time

See below PowerPoint; it contains a roadmap, overview of SMEs needed and a Bahamas case study.

Bahamas' VAT introduction

Bahamas introduced a VAT system that was supposed to come into force on Juli, 2014, bit was delayed to January 1, 2015.

We provided support to the largest Telecom company on the Bahamas for system and process implementation including training. The go-live of the new VAT system was successful - see our case study, roadmap and core team in below PowerPoint:

• VAT and systems new legislation: overview of important topics for a new VAT implementation related to systems and  checklist
• Our Bahamas experience showed as well that a Caribbean Island requires a bit different approach than a mature EU VAT country

From the case study it follows that we have supported the largest Telecom company on the Bahamas (also a Caribbean Island) with the following items:

• Review of the proposed legislation and impact on the business processes
• Design of VAT logic in the various systems (Billing systems, Point of Sale System, Accounting system)
• Communication with suppliers of the IT systems about requirements
• Implementing VAT logic in some IT systems
• Test design and actual testing
• VAT training to key staff
• Master data analyses, design and review
• VAT return process and additional VAT controls
• Communication with important customers/vendors
• Design of new VAT compliant business processes

Richard CornelisseT:  +31 20 658 6344
M: +31 6 5399 4874

E:  richard.cornelisse@phenix-consulting.nl